[jaiterryParticipant@jaiterryJoin Date: 2011Post Count: 13]

April 15, 2012 - 12:33 am

Bingo! If only I’d cared to research it six years like Gazza!

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April 12, 2012 - 11:30 pm

I could easily demonstrate that I have invested in renovations for the property which was one of the points that the accountant made. Do you think that is a valid argument. I’ve spent far more on the property that what has been redrawn especially if I “return” the 55K.

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April 12, 2012 - 11:11 pm

htopg – sounds like a great position to be in! Unless you HAVE to move out like I do you are living rent and mortgage free so cash flow should be good and a good amount of equity.

Interestingly, I spoke with another accountant last week who backed up what the other guy told me – that I don’t really need to worry especially about the older redraws because it is my PPOR and the tax office is unlikely to be concerned. He has told me to put the 55K so that it isn’t in question and I should be OK. Interesting…

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April 1, 2012 - 11:20 am

Great article in the latest API from Julia Hartmann that covers this exact scenario and it backs up exactly what you’ve said terryw so thank you. She runs through the same apportioning argument you’ve suggested above – anyone wanting to know above redraw should read it.

Interestingly I went to see an “accountant” who was part of a wealth management firm who gave me completely different advice! He said I didn’t have anything to worry about because the property was my PPOR… I’ll be meeting with another accountant next week for which I will PAY for advice this time.

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February 21, 2012 - 11:01 am

Hi Terryw,

Just to clarify, I am looking to move out of my PPOR and rent myself whilst investing in further property using the 125K I have at my disposal. So in the end I have more cash in my offset account than I have ever redrawn and I intend to use it for investment. Just not sure how to prove that on the books and make my original PPOR (now investment) loan fully deductible for the interest.

Cheers
jaiterry

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February 17, 2012 - 10:15 am

Now there is an interesting proposition… item C.

I have a considerable amount of equity in my home (>50%).
Perhaps there is a solution in there for my scenario.

Regards
jaiterry

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February 17, 2012 - 9:48 am

Thanks Terryw for taking the time to give me that example,

That does make sense and clearly I’ve oversimplified what a mistake I’ve made. My scenario (lots of little redraws overtime) will be even more complicated than the example above! I’ll have to show an accountant my data and see if it can be salvaged.

Word of advice to everyone if you ever intend to turn your PPOR into an IP
1. Never pay extra off your mortgage – put it in your mortgage offset account
2. If you do have additional funds available for redraw – talk to your accountant before redrawing! One big redraw that you can prove was used to invest should preserve deductibility on the loan but as in my case it will get convoluted real quick!

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February 16, 2012 - 10:10 am

So the current value of my loan is $325K – if I refinance to a new $325K loan I can’t claim a deductions of all the interest on this loan? I would keep the already redrawn/saved cash separate (as it is now).

What I was afraid of is that I’ve paid this loan down in the past to $274K and that would be the only amount of the loan I could claim interest deductions on (which is what I had read)

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February 16, 2012 - 9:16 am

Found it – thanks Terryw

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February 16, 2012 - 8:07 am

Thanks all!

Sounds like I’ve badly contaminated the loan unfortunately – but as Paullie suggests I might refinance. Since we will be turning it into an IP and renting it out I will be looking to switch to Interest Only anyway (currently P&I) so this seems logical. Please let me know if anyone thinks this won’t work.

Catalyst – definitely interested in the details of your accountant if he/she has real estate experience and you are happy with them. I’m in Sydney.

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February 15, 2012 - 11:01 pm

Hi Terry,

You’re insights are great – thanks for sharing. I’m still trying to understand when a hybrid trust becomes the “best of both worlds”. For tax deductibility of the interest on the units I understand that the unit holder must have a set interest in relation to the amount of units purchased. Does that mean that once the assets grow the discretionary beneficiaries have access to that portion of the income?

E.g. if 300,000 units are bought at $1 and the trust purchases $300,000 worth of property, all income (100%) must be distributed to the unit holder in order to receive full deductibility of the loan interest. If the property then increases to say $450,000 does that mean that only 66% of the income needs to be distributed to the unit holder now (cashflow and CG) and the other 33% can be distributed to beneficiaries?

I could see this being powerful for those who want to take advantage of negative gearing in the initial stages of controlling a property but then wanting to transfer earnings to a non-working spouse or family member when the property begins to turn a profit. This is basically my scenario.

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November 29, 2011 - 2:54 am

My score was -322 but when I calculated it per the caption ( [Investment assets – Personal Debt] / Salary ) it comes out at -1.28?? Am I missing something that the real calculation isn’t that simple?

I know the message is the same (i.e. start obtaining investment assets to fund your lifestyle) but I’m a little disappointed in the way they message seems to be mis-represented. Big fan of 0 to 260+, not a big fan of the wealthscore tool.